Gov. John Kasich’s plan to raise drilling taxes and lower the income tax ran into a double-edged
legislative buzz saw from Republicans who really like drilling and really hate raising taxes on
businesses, especially in an election year.

Kasich, who stresses his proposal does not add up to an overall tax increase, is not about to
give up. But he is fighting a drilling industry that contributes a lot to candidates and is using
more and more lobbyists to influence legislators.

“We’ll have a series of options, but everybody needs to know: I’m not going away, and I’m not
going to take no for an answer here,” Kasich said yesterday. “The taxpayers deserve better than
that, and we’ll get there.”

House Republicans last week stripped Kasich’s drilling-tax/income-tax proposal out of his
government-reform bill before starting hearings. The plan would impose a higher tax on oil and gas
companies that extract energy sources from wells using hydraulic fracturing; most of the tax
revenue would fund an across-the-board income-tax reduction for all Ohioans that could be worth
$500 million annually by 2017.

Republicans in both chambers last week expressed concern about increasing drilling taxes as the
oil and gas industry takes off in Ohio by tapping into the state’s shale. House Republicans said
the issue could be revisited, but they did not want it to hold up the rest of Kasich’s
proposals.

Kasich compared the brewing fight to his crusade as a congressman against the proliferation of
the B-2 bomber — a victory he won over Republican opposition after several years. He said none of
the counterpoints that legislators and oil and gas lobbyists have made “carry the weight of the
arguments that we make.”

Asked about those who focus on the tax increase, Kasich said: “That argument, I mean, you can
make it, I respect the fact that you can make it, but come on, that’s not a very strong argument.
The bottom line is, every Ohioan will benefit.”

Kasich has framed the argument well, said Paul Beck, a political science professor at Ohio State
University, by calling it a choice between letting Texas stockholders benefit from Ohio’s too-low
drilling tax or letting Ohioans benefit from more revenue.

“The politics of it are more on Gov. Kasich’s side,” Beck said. “He’s continued to hammer
(legislators) and attack the special interest, and that puts Republican legislators in a very
awkward position.”

The current crop of majority Republicans is perhaps the most conservative to control the General
Assembly in the past half-century. Of the 59 House Republicans, 22 have signed the anti-tax pledge
from Americans for Tax Reform saying the lawmaker “will oppose and vote against any and all efforts
to increase taxes.” Among them are Speaker William G. Batchelder, R-Medina, three members of his
leadership team and his chairman and vice chairman of the Ways and Means Committee, which handles
tax-related bills.

Rep. Mike Dovilla, R-Berea, the committee vice chairman, declined to speak about Kasich’s tax
proposal, but he hit a common note from legislative Republicans about taxes: lower is better.

“Ohio’s tax and regulatory climate over the last several decades has not been helpful for job
creation,” Dovilla said. “I don’t want to see us take steps at this point that would move us in the
wrong direction.”

Kasich’s proposal complies with the tax pledge, said Josh Culling, state affairs manager for
Americans for Tax Reform, which founder Grover Norquist leads as president.

But legislative Republicans say it isn’t so simple. Some don’t want to raise taxes on a growing
industry during an election year, risking anger from business supporters and potentially less oil
and gas investment while potentially getting pulled into the blame game over gasoline prices.

And some note that it’s all for an income-tax cut that would not fully materialize until 2017 —
and even then could amount to less than $50 a year for most Ohio residents.

The Ohio Liberty Council flatly opposes Kasich’s plan, which it dubbed “a 40 percent tax
increase on a key job-creating industry in exchange for a minimal personal tax decrease.”

President Tom Zawistowski said, “It is a tax that simply is not necessary and could reduce the
amount of drilling in Ohio and kill jobs.”

Senate President Tom Niehaus, R-New Richmond, has long been a supporter of the oil and gas
industry and the need for increased drilling. He sponsored a bill that was signed into law in 2004
that prevented local governments from banning drilling in certain areas. He also sponsored a
rewrite of Ohio’s oil and gas regulations and safety standards in 2010.

Asked if Niehaus agreed with the House decision to shelve the plan, spokeswoman Angela Meleca
declined to comment, saying the Senate is focused on its own parts of the governor’s package.

Chesapeake Energy’s PAC gave $65,500 last year to House and Senate Republicans and another
$4,500 in January. It also gave $10,000 to Kasich to help pay for his inauguration last year. The
Ohio Oil and Gas Association gave $93,000 to GOP lawmakers.

Chesapeake has eight lobbyists registered in Ohio. The Ohio Oil and Gas Association has three;
the Ohio Petroleum Council and the Ohio Gas Association have two each. One of the Ohio Gas
Association’s two is Jimmy Stewart, who came over from the Senate last year.

“I’m not sure there’s another lobby interest that can match the oil and gas industry for
swagger,” said Jack Shaner of the Ohio Environmental Council, which has battled the industry often.
“So far, they’ve stopped cold a tax cut. They only have a handful of people down there, but it is
amazing the hypnotic influence they’ve got on the legislature.”

But Meleca said: “There is no more influence from that industry than you would see from any
other.”